Deficits: A Danger to The National Defense

October 18, 1984

Every nation must pay for its defense. England liquidated its overseas assets, the investments of generations, and borrowed heavily to wage war against Nazi Germany. After the war, it chose policies of current consumption rather than savings and investment. It did not earn its way in world trade, and was quickly surpassed by its former adversaries in economic strength and military potential.

America is pursuing policies today not unlike Britain's after the war. It is doing so not out of necessity but because of a lack of political will. It has embarked on a military buildup without paying for it out of current revenue. Instead, it is borrowing $2 billion a week from foreign countries. High U.S. interest rates, the direct result of not taxing to pay for spending, extract this capital from other countries.

These economic policies damage the nation's security in a number of ways: 1) the nation's manufacturing base is being eroded; 2) America's technological lead is being undermined; 3) by curbing economic growth in Europe and Japan, relations with our allies are being strained; and 4) in the Third World, the cause of democracy is receiving a severe setback.

Imports are capturing an increasing share of the U.S. market. American exports are faring less and less well in the world's markets. Record trade deficits are announced monthly, resulting in millions of American workers' not being employed or trained. There is now a documentable erosion of both basic and emerging industries, which are necessary to the defense of the nation.

Steel-making capacity alone has shrunk 30 percent since January 1981; import dependency in steel has increased to well over 25 percent. Even this level of domestic production is maintained by a patchwork of export restraint agreements.

The telecommunications industry, in which America is the world leader in technology, has witnessed a sharp reversal in its trade position in the past 3 1/2 years, from a surplus of $1 billion to a deficit of $200 million.

And this is only the beginning. The trade gap is predicted to widen sharply unless economic and trade policies are changed.

This disaster is not due to our workers' becoming less energetic, American management's becoming less far-sighted, or American scientists' becoming less innovative. It is due primarily to the overvaluation of the dollar adding to the other problems of international competition.

Every week that goes by under pres U.S. firms and workers make and export nearly $3 billion dollars' worth of goods less than the foreign goods this country imports. This trade gap causes a loss of invention of new products and new technologies.

Lost sales mean lost revenus. For every telephone system, nuclear power station or conventional electrical generating system that the United States does not supply abroad, U.S. firms have fewer dollars to spend on research and development and, therefore, learn less about ways to improve existing products and create new ones. More insidious still, our industries do not demand as many engineers and scientists, and fewer are trained, all due to an abstraction, an overvaluation of our currency that is pricing U.S. goods out of world markets and making imports unreasonably cheap in our own market.

In the mistaken belief that it will give America lasting strength, vast -- borrowed -- resources are being spent on defense hardware. But any arsenal of weapons becomes obsolete shockingly fast. To remain strong, the country must have a strong industrial base and the latest technologies, and the ability to create new products and new technologies. Current policies cannot achieve this necessary set of objectives; on the contrary, they are dfeating them.

It has long been the objective of U.S. policies to promote the cause of democratic government throughout the world. We could not long survive as a single democracy in a sea of world communism. The strongest resource for our cause is the fact that communism produces want, and a working free market system produces well-being.

But America's economic policies are curbing growth in the world's poorest nations. Interest on external debt has risen to extreme levels, and for the first time there is an actual inflow of capital from these poor countries to the United States. What is the sense of stockpiling arms while, at the same time, sowing the seeds of discontent and revolution that make their use ever so much more likely?

What is so tragic is that this damage to our national defense need not occur. There is no absence of the tools needed to restore health to the U.S. trade position, and thus its long-term defense posture, and to increase the numbers of productively employed Americans and friends of America everywhere. The first step is to cut the federal budget deficit.